Four in 10 Canadian Credit Card Holders Uncertain About Importance of Paying More than Minimum Due

TransUnion Global Consumer Payment Research Highlights Benefits of This Practice

New research across global markets from TransUnion (NYSE:TRU) has found that those consumers who make payments in excess of the minimum due are consistently less risky across multiple credit products.

TransUnion’s research, which analyzed consumers in Canada, Hong Kong and the United States, determined that the more consumers pay over their minimum payment due for credit cards or other revolving lines of credit, the less likely they are to go delinquent. Such findings derived from trended data could help lenders better mitigate account risks and maximize consumer opportunities.

Whereas a traditional credit report offers a glimpse of a consumer at a snapshot in time, trended data assets leverage up to 24 months of historical information. For example, while a traditional credit report may tell you a consumer has $3,000 in credit card debt, one using trended data would show you whether they have built up or paid down that balance over time.

"Our findings, combined with the increased use of trended data, are good news for Canadian consumers. This will especially benefit those consumers who make larger than required payments on their debts each month,” said Todd Skinner, president of TransUnion Canada. “Even if consumers can't pay the full balance, they may now find that lenders view them more positively depending on the amount they pay. We encourage the use of trended data and the reporting of payment behaviour because both lenders and consumers can benefit from these newly available insights.”

According to a new TransUnion survey of 1,010 consumers in Canada, 88% of respondents indicated that they more often pay a greater amount than their minimum due on their revolving debts each month. Yet a significant number (39%) are uncertain about the importance or benefits of paying off an increasingly greater amount.

Around the World: How Do Consumers Pay Off Their Credit Cards?

Question/Country

Canada

U.S.

South Africa

Hong Kong

Percentage of credit card holders that often pay a greater amount than their minimum due on their revolving debts each month

88%

89%

44%

88%

Percentage of credit card holders that are uncertain about the importance or benefits of paying off above the minimum balance

39%

25%

21%

41%

“Leveraging trended data and the insights derived from it could also really help Canadian lenders better identify borrower risk trends and ultimately create greater credit access for consumers. This can only happen when financial institutions utilize trended data in real time, which is only available in Canada through TransUnion,” said Skinner. “When lenders can access it broadly across the consumer wallet, it allows them to better tailor their products to consumers, which builds better loan relationships and helps everyone in the long run.”

Payment Data Good Predictor of Delinquency

TransUnion utilized its Total Payment Ratio (TPR) metric to identify the correlation between payment amount and delinquency across multiple products and regions. TPR is calculated by dividing a consumer's total monthly credit payments by the total minimum due on all of the consumer's credit products. The higher the TPR, the less likely the consumer will fall behind on payments.

For instance, a person making $400 in payments on three credit cards when the aggregate minimum due on those cards was $200 would have a TPR of 2.0. A person making $1,200 in payments with an aggregate minimum due of $200 would have a TPR of 6.0. TransUnion used this metric to analyze how credit users performed on various loan types.

“Our research shows that consumers across the globe – be it in North America or Asia – can benefit from paying more than the minimum due,” said Ezra Becker, senior vice president and head of TransUnion’s global research operations. “This may sound intuitive—consumers who are able to pay more usually have more liquidity and therefore are less likely to miss payments. But it is the quantification of this intuition that is important. This is an insight one can only derive from trended data that includes actual payment data, and it can be an important variable for lenders to use when assessing the risk of their credit portfolios.”

The study found that the correlation with delinquency was consistent for markets as far ranging as Canada and Hong Kong. For instance, serious credit card delinquency rates (90 days or more past due, or “90+ DPD”) in Hong Kong dropped substantially for all consumer risk types as TPR increased—even when controlling for traditional risk scores.

Credit Card Serious Delinquency Rates (90+ DPD) – Hong Kong

TPR

Credit Score Risk Range

High Risk

Medium Risk

Low Risk

TPR≤ 5

3.85%

1.32%

0.22%

5 < TPR≤ 15

2.92%

0.79%

0.05%

TPR> 15

1.47%

0.23%

0.02%

The study further confirmed that payment behavior on revolving debt does impact performance on other credit products, such as auto loans.

Auto Loan Serious Delinquency Rates (90+ DPD) – Canada

TPR

Credit Score Risk Range

High Risk

Medium Risk

Low Risk

TPR≤ 5

1.77%

0.56%

0.10%

5 < TPR≤ 15

1.62%

0.36%

0.04%

TPR > 15

1.40%

0.16%

0.02%

"Our study confirmed that as TPR increased, delinquency rates declined for credit cards and auto loans in these varying markets,” added Becker. “This is a powerful new metric that adds value beyond the traditional credit score for evaluating risk.”

Trended Data Leads to More Consumer Benefits

New insights derived from TPR are only achievable when trended data are added to a consumer credit report. In 2015, TransUnion launched CreditVision in Canada to enhance lending and marketing decisions by leveraging dynamic data to see an expanded view of each consumer’s credit profile.

Previous TransUnion research in the United States found that it is likely such data will benefit more consumers. Compared to the use of a traditional risk score, the use of a CreditVision score could increase the percentage of consumers in the Super Prime risk category from 12% to 21%. Consumers in this risk group are typically eligible for better rates and terms on credit products.

About TransUnion (NYSE: TRU) Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion reaches consumers and businesses in more than 30 countries around the world on five continents. Based in Burlington, Ontario, TransUnion provides local service and support throughout Canada. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide. We call this Information for Good. Visit www.transunion.ca to learn more.